United States: The Trump Administration: The Future Of Health Care

The election of Donald J. Trump as the 45th President of the
United States, along with the Republican control of the majority of
both the House of Representatives and the Senate, will likely set
in motion a major overhaul of the nation's health care
system. As a candidate, President-elect Trump strongly echoed
calls to "repeal and replace" the Patient Protection and
Affordable Care Act ("ACA") and also called for other
reforms that would potentially affect Medicaid funding,
pharmaceutical regulation, and the health insurance industry.
Given the relative lack of detail in his policy proposals, it
remains to be seen what specific health care policy changes the
Trump Administration will present when President-elect Trump takes
office in January 2017. However, a number of sources provide
guidance as to potential policy proposals, including: (i) the
Health Care page on the GreatAgain.gov website, (ii) the Health
Care page on the Donald J. Trump campaign website, (iii) the 2016
Republican Party Platform adopted by the delegates to the
Republican National Convention, (iv) House Republicans' "A
Better Way" heath care reform plan, (v) H.R. 3762, 114th Cong.
(2016), a reconciliation bill that would have, had it not been
vetoed by President Barack Obama, effectively repealed certain
provisions of the ACA, and (vi) the Empowering Patients First Act,
a bill put forward by Congressman Tom Price, President-elect
Trump's designated nominee for Secretary of Health and Human
Services ("HHS"). This memorandum covers the various
areas of potential change within the nation's current health
care system that may be brought about by the Trump Administration,
as well as the potential implications of such change.

The Affordable Care Act

The Current Law

The ACA, enacted by President Obama on March 23, 2010, was
designed to increase access to quality and affordable health care
by (i) providing subsidies to help low and middle income
individuals to purchase private health insurance, and (ii)
expanding Medicaid coverage to individuals under 65 with incomes up
to 133 percent of the federal poverty level who were previously
ineligible. In order to facilitate a market for the purchase
of health insurance by low and middle income individuals, the ACA
mandated the creation of health insurance exchanges offering
qualifying health plans in each state (and federal default
exchanges). Individuals who met a certain income threshold
yet chose to remain uninsured faced a tax penalty.

In 2012, in response to legal challenges to the ACA, the United
States Supreme Court upheld the individual mandate but made
Medicaid expansion voluntary. Thirty-one states and the
District of Columbia expanded Medicaid voluntarily, with those
states that declined to do so citing cost concerns as a primary
factor. Under the ACA, the federal government covers the entire
cost of Medicaid expansion through 2016, decreasing to 97 percent
in 2017 and 90 percent in 2020 and thereafter. Nonetheless,
numerous states continue to decline the Medicaid expansion under
the ACA.

The Proposed Changes to the Law

Republicans have been nearly unanimous in their opposition to
the ACA, especially with regard to eliminating the individual
mandate provision. The proposal articulated by
President-elect Trump with respect to the ACA on the Donald J.
Trump campaign website is to "Completely repeal
Obamacare." However, reflecting the preference of many
Republican lawmakers, President-elect Trump has indicated that he
is in favor of keeping certain aspects of the ACA, including both
the requirement that insurers offer coverage to people with
pre-existing health conditions and the provision allowing parents
to keep children up to age 26 as dependents on their health
insurance. He has not, however, stated whether he would be in
favor of preserving other insurance-related consumer protection
provisions of the ACA, such as the community-rating regulations
that allow insurers to set premiums based only on age, smoking, and
geography without considering sex or health status, and minimum
standards for covered benefits.

The success of any repeal requires the Trump Administration to
put forth a workable alternative that takes into account the
difficulty in unwinding a major law in its sixth year of existence
that currently provides insurance coverage for millions of
Americans who may not be insured otherwise. Specifically,
since its passage, approximately 22 million additional people have
gained health insurance, 10 million of whom purchased health
insurance on the state health insurance exchanges.

President-elect Trump's specific proposals to
"replace" the ACA are aimed at promoting consumer choice,
stimulating competition, and enabling a wider range of health
coverage options. His campaign platform contains the
following proposals:

Removing the borders traditionally constraining health
insurance markets by allowing insurers and consumers to market and
purchase insurance across state lines;

Providing premium assistance in the form of a full tax
deduction of premium costs; and1

Expanding the use of flexible, tax-free health savings
accounts.

Repeal Strategy – Budget Reconciliation

While Republican control of the majority of both the House of
Representatives and the Senate makes major revisions to the ACA
possible, Senate Republicans do not hold the
"super-majority" of 60 seats in the Senate necessary to
override any potential filibuster of legislation by Senate
Democrats. Accordingly, a full repeal of the ACA is
unlikely.

However, many of the central aspects of the ACA, including the
individual mandate, are subject to the budget reconciliation
process requiring only a simple majority in the Senate to
pass. The budget reconciliation process enables Congress to
effect substantive changes to law that affect spending, revenues,
and the federal debt limit under strict procedural rules.
Specifically, reconciliation can be used to address most
entitlement programs, such as Medicare and Medicaid, but not Social
Security.

Budget reconciliation would require the House and Senate to
first agree on a budget resolution containing "reconciliation
directives" to specified committees. Each committee that
receives a directive prepares and adopts proposed legislation
through a committee vote. If a committee fails to meet its
budget targets, special procedures enable each chamber of Congress
to fill any gaps before the bill goes to the full House or Senate
for vote. However, provisions of reconciliation bills that
are extraneous to the purpose of implementing budget changes may be
blocked in the Senate. If it passes both the House and the
Senate, the reconciliation measure is then presented to the
President for signing.

In 2016, Congress unsuccessfully attempted to undo portions of
the ACA using budget reconciliation.2 That
bill, which passed both houses of Congress, but was vetoed by
President Obama, would have eliminated: (i) the expansion of
Medicaid coverage for adults up to 133 percent of the federal
poverty level, (ii) subsidies for middle-income Americans to buy
insurance in the state marketplaces, (iii) tax penalties for the
uninsured,3 and (iv) many of the taxes created to
fund the ACA program, including the "Cadillac" tax.
The bill provided for a two-year period before such provisions were
repealed. This attempt ostensibly provides a blueprint for
the Trump Administration, should it decide to dismantle the ACA
through budget reconciliation.

Potential Impact

If the Trump Administration follows through with its plan to
repeal major portions of the ACA, without replacing them with
measures that would preserve health care insurance for those
currently covered, the market impact of millions of people losing
insurance would be significant. Hospitals and insurance
companies would likely be affected negatively. For hospitals,
increased insurance under the ACA has led to greater demand for
care, increased revenue, and lower uncompensated care provided to
the uninsured. In addition, insurers could lose millions of
customers, both from the individual market and under state Medicaid
programs.

The problem of "adverse selection" may become more
pronounced without an individual mandate provision, as it is likely
that some individuals may not purchase insurance unless and until
they need it. If the Trump Administration remains committed
to eliminating the individual mandate but chooses to maintain the
requirement that insurers offer coverage to people with
pre-existing conditions, significant risk-pool problems could
arise, with insurers being forced to cover a sicker and more costly
population without attracting enough healthy enrollees.
Indeed, the ACA's coupling of the individual mandate and the
pre-existing condition rule was meant to address this problem.

Changes Outside of the ACA

Currently, federal Medicaid funding to the states is determined
by the federal Medical Assistance Percentages ("FMAP"),
which use measures such as per capita income to determine the
amount of federal matching funds provided to the states.
According to this guideline, for every $1 in state funds spent on
Medicaid, states can draw at least $1 additional from the federal
government based on the FMAP minimum, up to as much as $2.85 in
certain states. As a result, there is no ceiling on federal
Medicaid expenditures. Because the current system for
financing Medicaid concerns budget outlays and appropriations,
numerous Congresses have attempted to alter it through the budget
reconciliation process.

The Republicans, President-elect Trump included, envision
shifting more control to the states in order to maximize
"state flexibility." President-elect Trump proposes to
"block-fund" Medicaid, pursuant to which states would be
required to administer their Medicaid programs with a fixed amount
of federal funding. The intended result is to make states more
prudent in the administration of Medicaid and create a greater
incentive to eliminate fraud, a perennial concern of many
Republicans. House Republican's "A Better Way"
proposal is broader and offers the states a choice between a per
capita allotment or a block grant to fund care provided under
Medicaid. These reforms could have a significant budget
impact on states. The states that have expanded Medicaid
under the ACA generally stand to see a negative impact, which may
require such states to restrict eligibility and/or limit benefits
within their respective Medicaid programs.

Medicare Policy

President-elect Trump's campaign website and his
GreatAgain.gov transition website are largely silent with respect
to addressing Medicare, with references to "modernizing
Medicare." Because the Republican Party Platform and the House
Republican's proposals are intended to expand consumer choice,
also a dominant feature in President-elect Trump's proposals,
it is possible that the Trump Administration would closely consider
such proposals or adopt them entirely.

Payment Structure

Currently, Medicare provides two general options for
beneficiaries: traditional Medicare or Medicare Advantage. In
traditional Medicare, reimbursement is made to providers through a
fee-for-service system. Medicare Advantage, on the other
hand, allows beneficiaries to enroll in private insurance plans
approved by Medicare. Medicare pays the private insurance
plan a monthly capitated fee. The Republican platform broadly
calls for introduction of an alternative option to traditional
Medicare, a "premium-support model designed to strengthen
patient choice, promote cost-saving competing among providers, and
better guard against fraud and abuse . . ." Although Medicare
has been partly privatized through the Medicare Advantage Program,
the House Republicans' proposal clarifies that this option
would offer a range of different coverage plans, unlike Medicare
Advantage, which requires identical benefits be offered to all
beneficiaries regardless of differences in health status.

Value-Based Care

The ACA included a series of reforms to the way in which
Medicare reimburses health care providers, which were designed to
decrease utilization and increase quality through broader provider
integration, capitated payments and coordination of care.
This was consistent with the seemingly wide consensus over the need
to tie Medicare and Medicaid reimbursement to quality
measures. Medicare Advantage, for example, is looked upon
favorably by most Republicans and is lauded as a successful model
of promoting value-based care in the House Republicans' reform
plan. However, because of the interplay between the ACA and
its emphasis on accountable care, a complete repeal of the law
would also mean ending important initiatives to promote and develop
successful models for value-based care, a key example of which is
the ACA-funded CMS Innovation Center which was created by the ACA
for the purpose of testing innovative payment and service delivery
models to decrease expenditures while preserving or enhancing the
quality of care for beneficiaries of Medicare, Medicaid or
Children's Health Insurance Program. The House
Republican's proposal contemplates eliminating the CMS
Innovation Center and shifting the role of developing innovative
payment and service delivery models to the states by promoting
state innovation grants. Congressman Price has been a vocal
opponent of certain mandatory "bundled payment"
initiatives. Notwithstanding any repeal of the ACA, it is likely
that the market-place drivers of value-based care and
pay-for-performance will continue to push the health care payors,
public and private, in this direction.

Drug Regulation and Pricing

Similar to President-elect Trump's proposals related to
health insurance, it is likely that the Trump Administration will
also seek to remove barriers to open competition in the
pharmaceutical market. Specifically, the President-elect has called
for allowing the importation of drugs from abroad, and the first
100 day plan includes "cutting the red tape at the FDA"
in order to speed up the process for "over 4000 drugs awaiting
approval." President-elect Trump has also called for allowing
Medicare to take advantage of its market power and negotiate
directly with pharmaceutical companies for lower rates.

Appointment of Tom Price

On November 29, 2016, the Trump Administration stated that it
would appoint Congressman Tom Price as Secretary of HHS and Seema
Verma, a health-care consultant, to run the Centers for Medicare
and Medicaid Services ("CMS").

HHS is an executive level agency responsible for administering
federal health care programs and executing laws under its
authority. It oversees over 100 programs nationwide and
implements parts of the ACA that deal with private and public
health insurance. HHS also regulates and enforces laws
related to health information privacy, clinical research, and civil
rights. HHS is headed by the Secretary. It is the
overseeing agency of a number of sub-agencies, including the Food
and Drug Administration and CMS, which administers the Medicare
program and along with the states, Medicaid and Children's
Health Insurance Program. Both the Secretary of HHS and the
Administrator at CMS are appointed by the President and confirmed
by the Senate and serve without fixed terms.

Congressman Price is the U.S. Representative for Georgia's
6th congressional district, serving since 2005. He currently serves
as chairman of the House Budget Committee and was previously
chairman of the Republican Study Committee and the Republican
Policy Committee. A former physician and veteran lawmaker, he
has been a staunch critic of the ACA. Price has proposed
legislation that, if passed, would have replaced the ACA.

First introduced in the 111th Congress, the Empowering Patients
First Act sponsored by Price has as its first provision the repeal
of the ACA.4 In its place the bill would provide for a
tax credit and deductions to offset the cost of insurance. In
addition, the bill would allow individuals to opt out of Medicare,
Medicaid, and other government payment programs and instead receive
a tax credit to purchase health insurance, without losing Social
Security benefits. The legislation also calls for the
promotion of state-based high-risk insurance pools and the creation
of individual and small employer membership associations and
association health plans. Other aspects of the bill are
similar to proposals put forth by House Republicans, including the
"A Better Way" proposal.

As Secretary of HHS, Congressman Price will have significant
influence in shaping the administrative agenda of the agency.
Congressman Price would be in a position as Secretary to exert
significant input in developing the legislation to replace of the
ACA. It would then fall to HHS to draft most of the rules
needed to implement whatever legislation is passed. We
anticipate that any replacement to the ACA, like the ACA itself,
would require significant regulatory input to address the numerous
detailed aspects of insurance regulation, Medicare, Medicaid, and
other elements.

Centers for Medicare and Medicaid Services

CMS has responsibility over the administrative simplification
standards under the Health Insurance Portability and Accountability
Act, quality standards in long term care facilities and
laboratories, and oversight over HealthCare.gov, the website
operated by the federal government to facilitate the health
insurance exchanges under the ACA. CMS is authorized to
formulate rules through notice and comment and has thereby
implemented numerous significant administrative rules impacting
many facets of health care. Importantly, CMS works with
states in connection with the expansion of Medicaid under the
ACA.

Seema Verma is the CEO of a health policy consulting firm who
has worked in designing Medicaid expansion in a number of
Republican leaning states, including Indiana and Kentucky. As
head of CMS, Verma would be in position to set the policy agenda of
the agency in line with the Trump Administration. In
particular, CMS would be in charge of implementing reforms to
Medicare and Medicaid such as switching to a block grant system,
which the Trump Administration has proposed. If the ACA were
to remain, CMS would have significant control over the waiver
process pertaining to the expansion of Medicaid.

Takeaways

While the election of Donald J. Trump as the 45th President of
the United States, along with the Republican control of the
majority of both the House of Representatives and the Senate, will
result in changes to ACA, a full repeal of such legislation is
unlikely and any changes will likely be phased in over at least a
two year period. This is in part due to the complexity of
drafting an alternative that addresses the concerns of individual
consumers, health care providers, and insurance companies. We
will continue to monitor changes in legislation or agency
rulemakings and policies that will impact the health care
marketplace.

Footnotes

1. The House Republicans' plan also looks to the tax code to
aid consumers in affording health insurance, and such plan may
possibly be adopted as a stronger alternative. Instead of a tax
deduction, the House Republicans proposed in "A Better
Way" to provide an advanceable, refundable tax credit adjusted
for age to be used for purchasing health insurance. Any funds
leftover after premium costs would automatically be applied to a
health savings account.

2. H.R. 3762, 114th Cong. (2016).

3. While not a repeal of the "individual mandate" and
the "employer mandate," the bill eliminated the penalties
associated with non-compliance.

4. H.R. 3400, 111th Cong. (2009).

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